Thursday, August 19, 2010

Technical Picture - Unexpected Rise in Jobless Claims Drags Markets Back Down

An unexpected rise in Initial Claims (500k vs. consensus 475k), followed by a significantly weaker Philly Fed report (-7.7 vs. consensus +7.5) sent markets lower into midday with only a minor attempt to rally off the lows in the afternoon.

As you can see from the 15 minute chart below, the SPY formed a double top over the previous two sessions. Price gapped lower on the weak jobs data, retested the broken trendline on the opening range and was rejected. The Fibonacci lines are placed from high to low of bearish double top chart pattern in anticipation of a full measured move (100%). Price barely paused at the gap fill before resuming the move lower and attaining the target. Exit on weakness, as price approaches the target, don't wait for an exact tag.

As noted on the daily chart above, if this week's lows don't hold as support, we could target the 62% retrace of the July/August rally (ambush zone).

When price tested the morning lows on weak volume, it was an opportunity to get long. I placed my fibs from peak to trough of the last leg down in order to monitor the ambush zone as a possible reversal. Initially, price clears the 62% retracement on a closing basis, but immediately reverses, signaling the end of the move. The inability of the market to rally beyond the ambush zone leaves the door open for further weakness. Tomorrow is OPEX and things could get choppy after the first hour.

ABX was a great long yesterday, but today it carved out a tweezer top reversal at the ORH, setting up a short trade back to the ambush zone/trendline support. Since price opened within the previous day's range, place Fibs from PDL to PDH. Notice how yesterday's bullish base (support/congestion zone) lines up perfectly with the 62% Fib. retracement.

SNDK breaches its trendline on the open, tries to recover and fails. This looks like a late entry, but I didn't want to short above the 5 day support.

Euro vs. $USD - looks like a bear flag developing on the Euro and a bull flag on the greenback. If the Euro falls down, expect Gold to retest highs and the S&P to retest low end of trading range.

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